Kevin Phillips is author of Arrogant Capital: Washington, Wall Street and the Frustration of American Politics and the editor-publisher of the America Political Report. He is a contributing columnist for the Los Angeles Times, a member of the political strategists' panel of the Wall Street Journal, a regular commentator for National Public Radio and served as a commentator for CBS television at the 1984, 1988 and 1992 Republican and Democrat presidential conventions.
Multinational Monitor: Why were the Republicans able to pull off such a stunning triumph in the recent elections?
Kevin Phillips: Mostly it was a repudiation of Clinton and the Democrats. It looks like the type of pattern we've seen four times previously since World War II: the mid-term landslide which usually involves a strong reaction against a President who has very low ratings or has had scandals, or is in the middle of a recession or war. The four previous examples are 1946, 1958, 1966 and 1974. In those elections you had a gain for the party out of power in the House races of between 47 and 56. The Senate change varied from 3 to 13 seats.
The pattern this year is quite similar, and the Republicans will make a big mistake if they over- interpret this as a mandate for themselves as opposed to a vote of disgust with Clinton, Washington and the Democrats. The polls show that people were mostly voting against Clinton and the Democrats, not for the Republicans.
What makes this so interesting, of course, is that you do have one component of this election that can be described as a revolution, and that's in the House. But in the larger sense, within Washington and the national political system, this isn't a revolution. It isn't a realignment. It's a mid-term landslide pattern that's been seen before.
MM: So you do not think that it was a vote for the "Contract with America" and that Republican agenda?
Phillips: No, not specifically a vote for the contract or agenda. It was a vote that was cast with the idea that the Republicans would advance their own programs, which would not include big government, preference to Washington lobbyists, or something like that.
In other words, there were certain things people were very clear that they didn't like. They didn't like the President, first of all. They didn't like the big government solutions, and they didn't like making promises to change things in Washington and then not doing it. I think it's fair to say that they didn't like all those things.
That doesn't add up to much of a mandate for the Republicans, because that's not the way in which they were likely to err. The average person really didn't know what was in the Republican contract.
MM: Do you think the Democrats could have done better in the election?
Phillips: You can always say that the Democrats could have done better. The Democrats could have understood earlier that they had a leader who was somebody who wasn't making it with the American people. They could have understood that they came up with a too large, intricate and bureaucratic health program, and that was a mistake, and that it was going to be a tarbaby. So the Democrats made a lot of misjudgments.
I also think that you can't prosper if you're the Democratic Party with what could be called Goldman-Sachs economics. You've got to have "average person" economics. You start resting your oars on the Robert Rubins and Tony Coelhos, you've got a big problem.
MM: How then do you respond to the widely held view that the message to the Democrats is that they need to move to the center?
Phillips: The center is mush. The center is interest groups. That's not where they need to go. They need to develop a dynamic politics based on perceived Republican failures.
I would agree that they have to get rid of the Democratic fascination with cultural fringe politics. They've just got to figure the average person doesn't want that, doesn't like it, and it's going to cost them a lot of votes.
But in terms of their role in supporting the economics of the average man and in opposing the excesses of corporate financial leaks, that's what keeps the Democrats in business starting with Jefferson, and certainly down to Harry Truman.
You don't restore that dynamic in the center. The center is where you go in and get the envelopes from the lobbyists with checks in them.
MM: Do you think the vote onNAFTA had any effect on the election?
Phillips: I think it gave Clinton an artificial surge of confidence in November-December- January of 1993, early 1994, and it dovetailed at the time with a seeming pickup in the economy. That was probably part of what kept him in high gear on health reform too long. If he backed down to a more moderate position during that period, he would have avoided what was a very dangerous and tricky debate for himself.
The other thing that was a problem for him with NAFTA is that it coincided with this whole emergence of Goldman-Sachsonomics, which is what I call it now. It seems to sum a lot of things up. That's being in love with the bond market, and not understanding that the happiest bond market comes when the average American is in economic trouble, and pulling punches on all kinds of economic issues including corporations dumping 8,000 or 11,000 people so that they can get their stock values up. It turned out that in a couple of those cases of mass layoffs, like Xerox, the CEO of the company that was doing the dumping was a Clinton fundraiser.
You had striker replacement and a whole lot of other issues where Clinton created the impression, I think, with a lot of people within the labor movement and among blue-collar Americans, that this was a Democratic administration that wasn't on their side. This was a Democratic administration that liked to hobnob with Wall Street fatcats, worried about the bond market and got its contributions from lobbyists who weren't lobbyists for unions. The whole effect of that, together with Clinton's lack of personal credibility, was probably a fairly low labor and blue-collar turnout in historic terms and a loss of commitment to the administration.
MM: What do you mean when you talk about an electoral revolution?
Phillips: Thomas Jefferson had a notion, and so did some of his contemporaries, that we had to have a kind of revolution of a non-bloodshed nature, roughly once a generation. He called the election of 1800 the Revolution of 1800; although it was just a presidential election, it had a lot of meaning. And Jackson sort of thought of 1828 in the same way.
I've always believed that the genius of American politics was to have a great upheaval election that changed the shape of national politics once a generation. We have had them, and they usually involved a sort of populist progressive thrust, in 1800, 1828, 1860, 1896 and 1932, although that populist progressive thrust lost in 1896 because it overreached.
Then we had another one in 1968 that put the Republicans in charge for 20 out of 24 years, but was never able to go below the presidential level, notwithstanding the six years of a Republican Senate. The permanent Washington essentially muted or even blocked the upheaval from the grassroots.
Then Clinton came in. I'm not certain what he meant and how sincere his intentions were, but he ran against Washington and he came to Washington and he got rolled.
One of my reasons for writing Arrogant Capital was to suggest that this incredible buildup of interest group centrism has made it impossible for these presidential level realignments to work.
Some people will say that if the Republicans elect a president in 1996, then they will basically have the whole set-up, and that then you can have this kind of upheaval. I think there's a little bit of truth to that, because part of the upheaval simply involves the institutional revolutions and shaking Washington up.
But it's difficult for me to see the Republicans leading a kind of revolution against the Washington lobbyists and interest groups. I don't think they're any more capable of leading that than the Democrats are. So I think we're still going to have a problem, that the electoral upheavals can't reach in to this interest group centrism successfully enough.
MM: How was it that Clinton got rolled?
Phillips: In part, he was self-rolled. He set himself up in different ways. It's difficult to believe that he was 100 percent sincere in his outsider claims, because as soon as you start to see his modus operandi with all these Arkansas fat cats, it becomes clear that his way of dealing with things in Arkansas was to be part of the lobbyist crowd, to get contributions from the CEOs, and to basically work with them. In the context of Arkansas, he would have been slightly left of center, I suppose, but not in any way that he couldn't work with Walton and Tyson and the whole crowd. He did. And Hillary was on the boards of some of those companies. So, we shouldn't have believed it. He talked the talk, but he didn't walk the walk.
When he came to Washington, who did he sign up? Lloyd Cutler, Ron Brown, Vernon Jordan, Mickey Kantor - obviously not people who were enemies of the lobbying establishment.
Then, when he did the tax and budget package, the administration made deal after deal after deal with lobbyists. They did the same thing on NAFTA. So basically, they legitimatized interest group politics by the way they behaved as well as the way he dealt with the insiders almost from the start.
MM: In Arrogant Capital, you label lobbying interests and other Washington establishments as a parasitic culture. Why did you use that label?
Phillips: Let me start with the reason that I use the term parasite. I found that it was a term that was used with regard to the population of previous capitals - Athens, Rome, Madrid, which even had what I would figure qualifies as the first thinktank. And talk about parasites! Madrid and Rome and The Hague in Holland - there are things in the book about the extraordinary extent to which capitals have prospered and attracted all the fortune seekers, and they continued to grow, or if you like, fester, even while the rest of the country is starting to thin down a bit. So that's the reason for the term parasite. This is an old process.
There are 4 or 5 statistics concerning the Washington parasite culture that I like to toss out. The first is that there was a very loose census done by Professor James Thurber of American University, in which he found in the early 1990s that there were 91,000 people who were either lobbyists or engaged in supporting lobbying activities. The estimate was that right after World War II there were probably only a couple of thousand that would have fit in that category. There were something like 800 people admitted to that bar of Federal District Court of the District of Columbia in 1950, and by the early 1990s, it was 61,000. And of course Washington has emerged as having the highest per capita concentration of lawyers in the world. The congressional staff is up from 1,500 in the early 1930s to about 2,500 to 3,000 at the end of World War II to now over 20,000. The number of journalists is up from several hundred in the 1930s to 12,000 to 15,000 today. And the last statistic is that now seven of the richest per capita income counties in the United States are in metropolitan Washington.
MM: What then are your key proposals for political reform?
Phillips: I put ideas in the book based on the failures of previous leading economic powers, and what the problems were and how we might play around as a device for dealing with them. But I found that in the last 10 weeks, oddly enough, this is a debate whose time has come. There is all this discussion now of what we can move out of Washington, how we could dismantle the capital. I don't know how much it matters, but it's at least worth discussing. You can send congress home for six months of the year. You can let them vote from their home districts. There's no reason why they couldn't do that. Technology will support it. You could reduce the staff of congress that way. A lot of the lobbyists would have to find some other place to do their thing because nobody would need 91,000 of them if they're only in Washington six months of the year. Things like that.
Where the new congress is not going to achieve very much in my opinion is beyond the first one or two points on the list.
My second group of proposals was to ease the separation of powers. It wasn't very elaborate, but it basically suggested that you could let members of congress serve in the president's cabinet, or, and this would require a major legal change, you could let members of congress actually hold official federal secretarial or subsecretarial posts. That would be a major change in practice, but it would allow congress and the executive branch to start coordinating more.
I also had a proposal that we might think of some way to be able to dissolve Congress and maybe have the president run again if a vote of confidence was lost.
The third point was the weakness of the party system. I had a number of things that I suggested, including a national referendum. I suggested that there be some kind of commission to figure out what it's jurisdiction would be and whether congress would have a veto and so forth.
Polls that Time magazine recently took showed 76 percent to 19 percent - four to one - in favor of a national referendum mechanism. The other Anglo-Saxon countries are moving in the same direction, notwithstanding their shared tradition of representative government, partly because they are starting to see that representative government represents more interest groups than it does voters. We could put electoral reform, or things like NAFTA and GATT , before the public. Obviously the elites don't want to do that. But the public would love it and would be happy to have it.
I like the idea of term limits, recalls, "none of the above" on the ballots. Where you get "none of the above" in a position to perform a useful service is in very lopsided Republican or Democratic districts where the incumbent is a total dud and it's a safe district so the other party runs a total dud too and it doesn't really matter. If you had "none of the above" there you would really have a chance to do it. Obviously the Ollie North vs. Chuck Robb race could have been a wonderful one for "none of the above."
Proportional representation is something I discussed. I think it might be useful to consider if we start having multiple presidential candidates or we start getting a couple of serious minor parties - not as big as the Republicans or Democrats, but ones that are really developing organizational thrust.
MM: Why do you put so little emphasis on campaign finance reform?
Phillips: If you look at the G-7 powers, you get a very real sense that it's awfully hard to keep money out, and it sloshes almost no matter what you try to do to dehydrate it. In Germany , Italy and Japan , the political system is awash in money. Japan is worse than it is here. Italy was worse than it is here. In Britain and France there's all kinds of private money in the system.
The other impediment is simply that people are so contemptuous of politicians these days, they don't want to give them any money. So you don't have any support for public financing. People do not accept the idea that if the money is coming from the public in fairly limited and regulated quantities, then the politicians won't be able to do the games with private money that they do now.
MM: In Arrogant Capital, you link not just K Street but Wall Street to the current political paralysis, and you emphasize the financialization of America. What do you mean by that concept?
Phillips: My sense is that great economic powers in their heyday, as they start peaking and then start on a bit of a downcurve, usually see their manufacturing or their agriculture or their shipping - their physical commerce - start to lose ground because of the fascination that the country has with becoming the center of the international economy. This is whether it was Amsterdam, or London in the two decades before World War I.
The countries that are at this stage get into all kinds of inventions of financial gimmicks and instruments, and it tends to financialize in the sense that people are less concerned about actual work. They don't want to build things. They want to manipulate things. There's always a lot of pioneering by these cultures, and it's all negative for the average person. It's all financialization.
The ultimate financialization has come with the superelectronic age. Lower Manhattan has become the new Tortuga, which was the pirate center in the Caribbean in the seventeenth and eighteenth centuries. The investment firms can do more with modems and quotrons than Henry Morgan and Blackbeard and all the rest could do under the skull and bones.
The result of this financialization process, where more and more are sucked into the orbit of Wall Street and the financial sector, is that all kinds of people in different parts of the country start thinking about how they can do a leveraged buyout of their business, or how they can get in this or that speculative side. It is very striking in the business community how many people who worked hard as humdrum presidents of little companies in Springfield, Ohio wanted to get pulled into the orbit of finance and somehow sell out or do a leveraged buyout. That was the way to go instead of being somebody who retired as having merely made good money for 20 or 30 years.
MM: How does financialization affect the average person?
Phillips: What we began to see, even before the rise of electronic finance, was the breakdown of employees getting the rewards of their productivity, and more and more of the profits in companies being taken by the top small group of managers. And whereas the CEOs of companies averaged 25 to 40 times the pay of the average worker back, say, in 1970, by the mid-to-late 1980s, you were looking at ratios like 120, 130, 140 to 1.
One of the reasons for this was the extent to which the senior people in companies were getting caught up in the whole financialization process. They wanted to get into buyouts. They wanted big salaries. They wanted deals. They wanted options. They've talked about golden parachutes.
A whole mindset developed in companies that had very little to do with whether you were actually making things that society needed or employing a lot of people or giving strength to a community. What counted was how much money you could get in your bonus, and how high you could get your stock price.
In the name of competitiveness and global problems, which obviously were very substantial, an awful lot of stuff was justified that was really just aimed at increasing the price of a company's stock. When Xerox laid off 11,000 or so a year or two ago, their stock price went up about 7, 8 or 9 percent very quickly. The CEO's bonus increased because the stock price increased. So in essence, he got a bonus from laying people off.
This undercuts the fabric and pulls things apart. There are all kinds of examples of the way this has worked against the average person. You have banks getting away with paying 2.75 percent on deposits while they charge 17 percent on credit cards, and politicians back off regulating this because it might upset the stock market. Pension funds have been undermined. There's just a whole mindset out there that grew up around the assumption that all this was acceptable and even useful.
MM: What other cultural shifts take place among elites in declining powers?
Phillips: You internationalize. You lose your parochialism. In the early stages of the rise to power, you've got countries, whether it was Rome, Holland, Britain or the United States, that were somewhat Puritan, that worked very hard. But as the country hits its peak, it becomes the center of the world. It becomes much more fashionable and internationally oriented, especially the elites. You get much more permissiveness. There is a sense of luxury, of sophistication. It's been fascinating to me how the Dutch and the British and the Americans, in succession, as they reached a relative peak of prosperity and sophistication, all became more interested in things French, not least French cooking and restaurants.
The other thing that happens is that people get caught up in the sophistication and economic opportunity of global finance and investment. And as a country tends to peak, investors don't get as much money from investing in the weakening parts of their own economy. So they want to ship it overseas. The Dutch financed a lot of the growth of Britain; they were major stockholders in the East India Company and the Bank of England. Then the British did, right before World War I; one of the reasons why their industry was aging was that they would rather put money into a tea plantation in Ceylon or a railroad in the Argentina, or for that matter, even something in Germany. They wouldn't invest it at home.
This whole sense of internationalism and sophistication removes the elites from a commonality with their own peoples. They don't care about decay in the Great Lakes or in the north of England, or in the old textile centers of Holland. It's much more exciting to worry about where you can put your money 4,000 miles away.
MM: What are your economically oriented reform proposals?
Phillips: I suppose you could divide it in three parts. First, there's a suggestion that we have to be very careful about how we globalize and pursue the glories of internationalization, because you're exposing a major element of the population to competition that they really can't deal with.
This is done in the name of globalizing the economy and sophistication and progress, but actually helps the 1, 2, 5 or 10 percent who have capital skills and education, whether it's the trade consultant, or the international ship broker, or the commoditity company that trades globally, or Goldman Sachs or First Boston. There are other people who lose the standard of living they enjoyed 10 to 20 to 30 years ago. As we accept globalization, more and more people in the midsection of the population may have slightly cheaper sweatshirts coming in from China, but somehow or another their whole standard of living is stabilized or heading down, and their children don't have the opportunities, and both parents are working to keep the same income coming in.
The next part is the question of how to deal with the tax policy. I think if one thing is clear in the tax system at this point, it's that the highest marginal rates are now imposed on the lower upper class, the upper middle class, whatever you want to call it - the people who are in the top 1 percent, but not in the top one-fifth of 1 percent. At $300,000 to $400,000 a year, the 39.6 percent top rate applies, but the deductions and exemptions are being phased out so that the real rate is like 44 to 45 percent. Whereas the people at the top who make their money out of investments are basically paying 28 percent. Since it's not earned income, they don't have to pay a Medicare tax. It's extraordinary how the highest marginal rates are on people who actually work, and who are not in the richest 100,000 families.
When Franklin D. Roosevelt in 1935 passed something he called the Wealth Tax Act through Congress, it had three or four different rates applying to the top 1 percent. They recognized in that tax package that a successful surgeon in some suburb who was just barely inside the top 1 percent shouldn't have to pay anything like the rate that was imposed on a Mellon or a Rockefeller. So in the mid-1930s, the bottom of the top 1 percent paid about a 15 percent rate. But by the time you got to the top of the 1 percent where you were looking at the richest families in the country, people who made several million dollars a year, and they paid 70 percent. That recognizes a difference that has been deliberately suppressed right now. If anything, we have the reverse.
The last point is to look at the question of the deficit. If it's a question of reducing the deficit from $200 billion a year down to $140 billion or something, which would have a helpful impact on the financial markets, the people who make the money ought to be paying for the process.
We could have transfer taxes on financial transactions. You could change the way estates are taxed, taxing individuals rather than estates. You could have a higher top rate. For incomes over $1 million, you could put that up to 45 percent or something.
MM: How to you assess the prospects for a new American revolution?
Phillips: We actually saw the beginnings of some of this upheaval on November 8. I don't think that the Republican contract is going to be all that successful, and as I suggested, I think there are parts of it that are weak and potentially counterproductive. But in terms of the reforms in Congress, and shaking up and emptying out the Democrats' 40-year stagnant bathtub in the House of Representatives, I think that is useful. I think the Republicans represent reformist elements in some way vis-a-vis Congress.
Now the other stuff they'll do, they'll try to move toward elite viewpoints in economics. I'm not sure about the globalization process, but if you listen to somebody like James Baker, it's the greatest thing since sliced bread; I guess it is if you're a corporate lawyer. I don't see that they're likely to do anything particularly constructive there. They'll try and take care of their lobbies.
I think that they'll lose some credibility. People will say, "Well, we got rid of Bush in 1992 because we were tired of him. We took congress away from Clinton because he was a waste of time in 1994. Now, guess what's happened again. We've got another set of people who've delivered more for lobbyists than for voters."
At that point, I think you're going to see people anxious to discuss broader reforms. So I think that this congress is going to make some small useful procedural reforms. But in a larger sense, it's going to catalyze some forms of economic economic arrogance and abuse that haven't been catalyzed before. At the same time, the Democrats will for the first time be shorn of all their lobbyist pals and their K Street white envelopes and their secure little castle in the House of Representatives, and they will have to rediscover the average person. That also may provide a political spur. So I think a lot of yeast is in place and I hope it rises in a successful way.